RIZAL COMMERCIAL BANKING CORPORATION v. Putnam, 23018.

• Decision Date: 10 July 1970
• Docket Number: No. 23018.,23018.
• Citation: 429 F.2d 1112
• Parties: RIZAL COMMERCIAL BANKING CORPORATION, a Philippine corporation, Appellant, v. Ned PUTNAM, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

429 F.2d 1112 (1970)

RIZAL COMMERCIAL BANKING CORPORATION, a Philippine corporation, Appellant, v. Ned PUTNAM, Appellee.

No. 23018.

United States Court of Appeals, Ninth Circuit.

July 10, 1970.

Alan Hart (argued), of Lindsay, Nahstoll, Hart, Dafoe & Krause, Portland, Or., for appellant.

Cleveland C. Cory (argued), Clarence R. Wicks, Don H. Marmaduke, of Davies, Biggs, Strayer, Stoel & Boley, Portland, Or., for appellee.

Before HAMLEY and WRIGHT, Circuit Judges, and SMITH, District Judge.^*

HAMLEY, Circuit Judge:

Rizal Commercial Banking Corporation (Rizal), a Philippine corporation, brought this diversity suit against Ned Putnam, a citizen of the State of Oregon, in the United States District Court for the District of Oregon. Rizal sought to recover $231,142.77 from Putnam under a guaranty undertaking covering a loan on a deferred letter of credit which Rizal had granted to Big Chrome Exploration Co., Inc. (Big Chrome), a Philippine corporation. The jury returned general and specific verdicts for Putnam and judgment was entered thereon. This appeal followed.

In March, 1963, Putnam became interested in an effort being made by Big Chrome to finance and develop a refractory chrome mine a few hours' drive from Manila, in the Philippines. At this time Jose Robles was president and Bernabe Ang was vice-president of Big Chrome. After conducting studies in the Philippines and the United States, Putnam formulated a mining proposal which he submitted to Robles and Ang. They notified Putnam that Big Chrome was interested in accepting his suggestions. At this point Putnam and Wayne Fogelstrom, vice-president of Discal Corporation (Discal), a San Francisco-based exporter of machinery and equipment, decided to participate in the mining venture.

The proposed financing of the project contemplated the issuance of a $300,000 letter of credit by a Philippine bank for the benefit of Big Chrome. Negotiations to this end were carried on by Robles and Ang, for Big Chrome, with Daniel Chiong, then assistant vice-president of Rizal. While these negotiations were in progress, Robles and Ang, for Big Chrome, entered into a formal written contract with Putnam and Fogelstrom defining their respective obligations in the mining venture.

Under this agreement, Putnam and Fogelstrom agreed to supervise the field operations of the mine. They also agreed to secure credit accommodations from a Philippine bank to enable Big Chrome to open a $300,000 letter of credit for the purchase of the mining equipment from Discal. This called for the payment of a $60,000 marginal deposit by Putnam and Fogelstrom.¹ The bank (Rizal), which later agreed to issue the letter of credit, raised the amount of the required deposit to $67,358.93, and this sum was changed to an interest-bearing fixed deposit.

On June 24, 1963, Discal executed its final invoice directed to Big Chrome, covering equipment purchased for the mining venture. The total amount involved was $300,039.78, of which twenty percent was paid at the outset. The balance of $240,031.82 was to be paid in six semiannual installments of $29,403.88 each, including interest at seven percent.

Putnam and Fogelstrom thereafter each paid $48,000 to Big Chrome, to provide for the deposit with Rizal, and for working capital needed by Big Chrome in getting the mining venture under way. Rizal then approved issuance of a letter of credit in the amount of $269,435.70. This approval was expressly made subject to five stated conditions. The fifth condition stated that the loan was payable in three years, with semiannual payments, and that "failure to pay any one installment makes the account due and payable in full."

On August 8, 1963, Big Chrome made the required deposit. At that time, pursuant to other conditions of the loan, Ang and his uncle, Ang Lam, executed a guaranty undertaking making them jointly and severally liable as guarantors of the Big Chrome loan. Rizal then issued the letter of credit. Also as a condition of the loan, Putnam and Fogelstrom subsequently executed a similar guaranty undertaking on December 13, 1963.

Due to circumstances which are not here relevant, it became impossible for Big Chrome to proceed with the venture, or to pay Rizal the first payment on the loan, which was overdue June 28, 1964. The present action was commenced against Putnam on March 17, 1967. Putnam defended on the following alternative grounds: (1) there was no valid cause (a concept somewhat analogous to consideration under the Civil Code applicable in the Philippines), or consideration, for Putnam's execution of the undertaking; (2) Putnam signed the undertaking as a result of a mistake going to the substance of the subject matter; and (3) the guaranty, if otherwise valid, was extinguished by extensions of time for payments due under the letter of credit given by Rizal to Big Chrome assertedly without Putnam's consent.

There was extensive pretrial argument on the question of whether the undertaking itself evidenced Putnam's consent to the extensions assertedly granted to Big Chrome by Rizal. This led to the filing of a memorandum opinion, on the day prior to commencement of the trial, in which the district court expressed the view that Putnam's consent had been so evidenced. Nevertheless, no limitation was placed upon the reception of evidence concerning Putnam's extension defense.

At the close of all the evidence, Putnam moved for a directed verdict on each of the three grounds relied upon in his answer, as set out above. The trial court reserved its ruling on this motion. However, when it instructed the jury, the trial court adhered to its earlier view that the extension defense was not available to Putnam. Thus, the court submitted to the jury Putnam's cause-consideration and mistake defenses, but not his extension defense.

In addition to its general verdict for Putnam, the jury returned special verdicts finding that the undertaking was not supported by valid cause or consideration, and that defendant entered into the agreement under a mistake sufficient to avoid the undertaking. Rizal moved for judgment n. o. v. or for a new trial arguing, among other things, that each of the special verdicts was contrary to the law and evidence. Putnam opposed these motions. Putnam also argued (by renewing his motion for a directed verdict) that the general verdict was supportable on an additional independent ground, namely that Rizal had, without Putnam's consent, granted Big Chrome extensions of time to repay the loan.

The trial court denied Rizal's motion for judgment n. o. v. or, in the alternative, for a new trial. The court declined to change its prior ruling on Putnam's renewed motion for a directed verdict, but indicated considerable misgivings concerning that ruling.

On its appeal Rizal argues that Putnam's execution of the undertaking was supported by valid cause and by consideration, and that, because of his own negligence, Putnam is bound by the undertaking even if he signed it without knowing its contents.

Putnam purports to cross-appeal from the denial of his motion for a directed verdict on the extension issue. But since Putnam is content with the judgment, which is in his favor, this argument is really one to affirm upon a ground not relied upon by the trial court. No cross-appeal was necessary. A successful party in the district court may have his judgment sustained on any ground that finds support in the record. Jaffke v. Dunham, Trustee, 352 U.S. 280, 281, 77 S.Ct. 307, 1 L.Ed.2d 314 (1957); M. O. S. Corporation v. John D. Haas Co., 375 F.2d 614, 617 (9th Cir. 1967).

We first consider whether the judgment for Putnam was required because, under the undisputed evidence, his guaranty (assuming its validity) was extinguished by extensions of time given by Rizal to Big Chrome without Putnam's consent.²

The governing rule, set forth in Art. 2079 of the Philippine Civil Code (Code) reads:

"An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension of time referred to herein."

The parties are agreed that whether Art. 2079 operates to relieve Putnam from liability under the guaranty undertaking which he executed depends upon the answer to two questions: (1) Do the undisputed facts show that Rizal granted extensions of time to Big Chrome; and (2) If there were such extensions, did Putnam consent to them?

Turning to the first of these questions, it appears that Rizal first advanced funds under the letter of credit on May 16, 1964, in the amount of $48,406.41. On May 29, 1969, Rizal sent its statement to Big Chrome for the amount so advanced. Chiong advised Big Chrome that the amount shown on the statement was immediately due, and would become delinquent after thirty days.³ Thus, having in view condition five of Rizal's approval of the letter of credit, referred to above, Rizal had a right, in the event of nonpayment, to sue Big Chrome for the full amount of the letter of credit after June 28, 1964. Or it could choose to sue only in the amount then due, foregoing acceleration.

On June 10, 1964, Rudolfo Pineda, Rizal's attorney, wrote to Big Chrome requesting payment of the amount that became due on May 29, 1964. Big Chrome did not reply to this letter. On October 2, 1964, Pineda wrote to Big Chrome again, asking for prompt payment of the amount due not later than October 15, 1964.

Robles replied on October 14, 1964, requesting that Big Chrome be allowed thirty days from October 14, 1964, within which to pay "the first or all amortizations" on the letter of credit. In explaining this request, Robles stated that he expected Development Bank of the Philippines (DBP) to approve Big Chrome's application for a loan within two or three weeks. Robles also stated that, if this request were granted, Big Chrome hoped...